Alberta resource revenue plunges to historic low
10 years ago, the province got 40% of its revenue from oil and gas. This year, it's less than 6%
Alberta has been through booms and busts before, but the scale of the current slide in oil and gas revenues is on a level that no government has seen in modern history.
Total revenues from non-renewable resources are expected to ring in just shy of $2.5 billion in the current fiscal year, which ends on March 31.
That will represent a mere 5.7 per cent of the province's total revenue for the year — by far the lowest on record.
The lowest take, previously, was 14.1 per cent in 1998-99, according to historical data from Alberta Energy.
Since 1981, the province has received about 26 per cent of its annual revenue, on average, from non-renewable resources. In three of those years, it peaked above 40 per cent.
So what does it mean for Alberta when royalties plunge to the depths they're at now?
"It's a real challenge for the future," said Janice Plumstead, a senior economist with the Canada West Foundation.
"Everything is pointing to, in the global market, that the price of oil is not going to increase appreciably in 2016. And I believe, with the inventory and supply that's available, that it might even take into 2017 until prices begin to rise again and that supply is actually taken up."
"So we could be looking at a really challenging budget period for Alberta for at least the next two years."
What to do?
The province shares Plumstead's outlook on oil revenues, with Finance Minister Joe Ceci forecasting no significant rebound in 2016-17 and warning the deficit in the upcoming fiscal year could easily top an eye-popping $10 billion.
Faced with a budget gap of that magnitude, "there's no easy fix" for Alberta, according to Trevor Tombe, an economist at the University of Calgary.
"There's no conceivable way I can think of for the deficit to be eliminated through spending cuts alone or revenue increases alone," he said.
To put the $10-billion figure in perspective, consider the inconceivable cuts that would have to be made to trim that much spending from the province's operating budget.
Cutting Alberta Health's budget in half would only get you $9.2 billion.
Eliminating Alberta Education altogether would only save $7.3 billion.
Kill Advanced Education, Agriculture and Forestry, Culture and Tourism, Environment and Parks and Municipal Affairs? That's just $7.2 billion, in total.
The dreaded T-word
On the other side of the coin, raising taxes could help bring more revenue into provincial coffers, and there has been plenty of discussion about the prospect of establishing a sales tax in the only province that doesn't have one.
Creating a provincial sales tax (PST) or harmonized sales tax (HST) in Alberta has the support of some experts, including former finance minister Ted Morton, but is wildly unpopular in public opinion polls.
Given the scale of the budget shortfall, Tombe believes a tax increase on its own would be an "inadvisable" solution.
"If you want to raise $10 billion from an HST, you're talking about a 10 per cent HST," he said. "That's a lot, and that would be a lot to do all of a sudden."
Barring a sudden return to $80 oil, Tombe said the only realistic way to bring Alberta's books back into the black is a "sustained but large change" in both government revenue and spending.
"And so, it would need sustained political will."
Consistency in fiscal policy may be a laudable goal, but Plumstead notes it's something that "appears to be lacking in the history of Alberta's budgeting."
"We've had a lot of different types of fiscal rules in the past and nobody seems to really follow them," she said.
"They keep changing them when the environment changes."
The pattern has been to make drastic cuts during busts, followed by rampant spending increases when times turn good again, and Plumstead said that's understandable, to an extent, for decisions made by politicians facing four-year election cycles.
Establishing some kind of longer-term financial planning — and sticking with it — would require extraordinary action, likely with "all-party support."
"This is actually an important piece where the public can become involved," Plumstead said. "But how do you engage the public to understand that there needs to be some type of fiscal discipline, long term, for the province to actually function really well?"
"It's a very challenging agenda. But the alternative is just to continue going through these spikes."
One way forward for the current NDP government, in Tombe's view, is to follow the same approach it has already taken with two other thorny issues: carbon-pricing policy and the latest royalty review.
"These are big, controversial areas that the government got through in a pretty good way," he said. "And they did that by appointing these credible, strong, independent panels and just letting them go off and do their work. They might consider the same thing for the budget."
It's an approach British Columbia is employing, announcing as part of its most recent budget the creation of a "tax competitiveness commission" to consult with citizens and businesses and make recommendations on changes to the province's sales tax policy.
"We could do a similar thing here, where we appoint some really strong people and try to get some advice," Tombe said.
"It might get the buy-in the government needs. But I'm not sure. Politics is a weird thing."